I have a client who works for a large (10k+ employees), private business. He is not an officer and does not have any ownership interest in the business. Recently, he was given the opportunity to purchase equity in the company in conjunction with a large investment the company received from a private equity firm. He would like to make the investment via a self-directed IRA, and has identified a custodian that would conduct the reporting on the investment.

The question is: is this a prohibited transaction? Based on everything I’ve read, it does not seem to be a prohibited transaction. The relevant facts are that he is not an owner of the business, and he is not benefitting from this investment in anyway outside of the IRA (his job is not influenced by whether or not he makes the investment). However, the rules seem grey on this, and given the severity of penalties for making a prohibited transaction, we are wanting some sort of reassurance. Thanks.